Redundancy
Redundancy survival guide
Being made redundant can be a difficult time in your life. Here
are some things you can do to sort out your money when you are made
redundant.
What is a
redundancy package?
A redundancy package includes any of the following:
- A redundancy or severance payment
- A 'golden handshake' or other incentive payment
- A payment in lieu of notice
- Unused annual leave and long service leave
Accrued sick leave or personal leave is not usually paid out to
you when you leave an organisation.
People who are owed employee entitlements after losing their job
because their employer has gone into administration or liquidation
may be able to get financial help from the Australian Government.
Find out more about the Fair Entitlement
Guarantee.
How will you be taxed?
A genuine redundancy, which consists of a payment in lieu of
notice and a possible incentive payment, has a special tax
treatment which allows some or all of your payment to be paid to
you tax free.
The tax free portion is usually:
base amount + (service amount x completed years of
service)
For the 2016/2017 financial year the base amount is $9,936 and
service amount is $4,969. Any amounts over the tax-free portion are
taxed concessionally at a maximum of 32% (including Medicare levy)
if you are below preservation
age, or 17% (including Medicare levy) if you have reached
preservation age.
Amounts over the tax-free portion are taxed as employer termination
payments (ETPs). If you are aged 65 or over you are not
eligible for a 'genuine redundancy' payment and your entire payout
will be treated as an
ETP.
Unused annual leave and long service leave is also taxed
concessionally, up to 32% (including Medicare levy). For more
information see the Australian Tax Office's redundancy payments webpage.
Making a redundancy
plan
Prepare an emergency budget
It's easy to spend your payout but it pays to be cautious.
Unless you are retiring, your payout will have to last you until
you get another job, and this may take longer than you think.
Smart tip
Work out how long your payout will last so you can better plan
your next steps.
The first thing to do is to list all your essential expenses and
add them up. These are costs such as rent or mortgage payments,
utilities, food, transport costs, insurances and other items that
are necessary expenses. Create a temporary budget, just to get you
through this period of time.
Work out where your money is going.
Budget planner
Once you have your budget sorted you can see how long your
payout can last before you get another job.
If you have received a large payout, think about:
- Putting the bulk of it into a high interest savings
account
- Using it to make extra payments on your mortgage (if you have a
redraw facility)
Then you can draw the money down slowly to cover your ongoing
expenses. If you choose to pay down debts faster than required, you
may be unable to access unemployment
benefits before any waiting periods end, even if you are
experiencing financial hardship.
Paying your bills
Trying to manage bills without a regular income can be
stressful.
If you are struggling to pay your loans and credit cards you can
apply for a hardship variation from your credit
provider.
If you are having trouble paying your water, phone, gas or
electricity bills, contact your utility providers and see if you
can negotiate a better repayment arrangement. See dealing with utility
bills for more details.
Here are some other webpages that can help you:
Don't forget your super
While you are not working don't forget about your super. Check
how much you have in your super fund and think about the effect a
break from work may have on your super balance.
Work out how taking a break from paid work will affect your
retirement income.
Retirement planner
Unemployment
benefits
Waiting periods
When you have been made redundant your payout will be based on a
number of weeks or months of your ordinary time earnings. You will
also have received an amount of money for your unused annual leave.
You will not be eligible for Centrelink benefits for the period of
time you have been paid for.
For example, if you receive a payout equal to 8 weeks pay plus 3
weeks for unused annual leave, you will not be eligible for
Centrelink payments for at least 11 weeks. This is known as an
'income
maintenance period'.
You may also have a 'liquid assets waiting period' based on the
assets you have that could be used as income.
If you are experiencing financial hardship due to unavoidable or
reasonable expenditure, these waiting periods may be waived. You
should contact the Department of Human Services to
lodge a claim for payment. They will be able to assess your claim
and advise you of any waiting periods that could apply.
Your partner's income
If you have a partner, your partner's income will be taken into
account when working out your entitlement to income support
payments.
If your partner has a high income you may not be eligible for
income support benefits. For more information see Department of
Human Service's
income test for allowances.
Retraining
Being made redundant may give you an opportunity to complete a
short course or pursue a new qualification. This may help you get a
new job.
If you are entitled to Centrelink benefits you may be able to
get help with the cost of retraining. See the redundancy webpage on the Department of
Human Services website
Returning to work
Finding a new job will be a relief for many people who have gone
through a redundancy. What you do next with your money will depend
on the state of your finances when you start your new job.
First sort your bills
If the bills have mounted up while you were unemployed, your
first priority will be getting back on your feet. Start with the
most urgent bills, making sure you leave yourself enough money to
cover ongoing living expenses. Be disciplined with your cash until
you have caught up with all your bills.
Money left over
If you are fortunate enough to still have some of your payout
left when you start a new job, think carefully about the
opportunities this gives you.
Here are a few ideas about what you could do with the left over
money:
- Reduce debt - If you have any debt such as credit cards or
loans, consider paying off all or some of this debt to free up
income for savings.
- Create an emergency savings account - This can
help you deal with unexpected events in the future. See our webpage
on building an emergency fund
for tips on how to create a savings buffer.
- Start an investment portfolio - Buy some shares or start a managed fund
that you can regularly contribute to and build your investment
plan
- Take a break - Being out of work and searching
for jobs can be extremely stressful, so if you can afford it, take
a short break before you start your new job to recharge your
batteries
Being made redundant can be an emotional and
difficult time. It's important to keep a level head and plan as
much as possible so that you make the best of what you have. Try to
keep a positive attitude as this will show through in job
interviews and seek help if you need it.
Related links
Last updated: 19 Jul 2017
